Can the Suplr Test Discriminate between Different Switching Regression Models: Application to the Us Gnp and the Uk/Us Exchange Rate

26 Pages Posted: 25 Apr 2006

See all articles by Dominique Guegan

Dominique Guegan

Ecole Normale Superieure de Cachan

Charfeddine Lanouar

College of Business and Economics, Qatar University

Date Written: October 2005

Abstract

In recent years two classes of switching models have been proposed, the Markov switching models, Hamilton (1989) and the Threshold Auto-Regressive Models (TAR), Lim and Tong (1980). These two models have the advantage of being able to modelel and capture asymmetry, sudden changes and irreversibility time observed in many economic and financial time series. Despite these similarities and common points, these models have been envolved, in the literature, largely independently. In this paper, using the SupLR test, we study the possibility of discrimination between these two models. This approach is motivated by the fact that the majority of authors, in applications, use switching models without any statistical justification. We show that when the null hypothesis is rejected it appears that different switching models are significant. Then, using simulation experiments we show that it is very difficult to differentiate between MSAR and SETAR models specially with large samples. The power of the SupLR test seems to be sensitive to the mean, the noise variance and the delay parameter which appear in each model. Finally, we apply this methodology to the US GNP growth rate and the US/UK exchange rate.

Keywords: Switching Models, SETAR processes, Test, Empirical power

Suggested Citation

Guegan, Dominique and Lanouar, Charfeddine, Can the Suplr Test Discriminate between Different Switching Regression Models: Application to the Us Gnp and the Uk/Us Exchange Rate (October 2005). Available at SSRN: https://ssrn.com/abstract=897954 or http://dx.doi.org/10.2139/ssrn.897954

Dominique Guegan (Contact Author)

Ecole Normale Superieure de Cachan ( email )

61 avenue du President Wilson
Cachan
France

Charfeddine Lanouar

College of Business and Economics, Qatar University ( email )

Box.O.P 2713
dOHA, 75005
Qatar

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
61
Abstract Views
1,129
rank
389,233
PlumX Metrics